Tap It Back: Peloton Countersuit Against Music Producers Quashed

Tap It Back: Peloton Countersuit Against Music Producers Quashed

In March 2019, 15 music publishers (the “Music Publishers”) filed suit against Peloton Interactive, Inc. (“Peloton”) for willful copyright infringement, ultimately seeking more than $300,000 in damages. For more details on the initial lawsuit filed, see this blog post^[1] published in November 2019 by IPLJ staff member Browning Platt.

This lawsuit has already damaged Peloton’s reputation, as it has caused some coveted music and classes to disappear from the company’s lineup.^[2] Peloton has since employed new tactics to please its users, such as having instructors teach themed classes to “promote new music, including an Artist Series featuring Billie Eilish, Lizzo, and Lady Gaga.”^[3]

Prior to the filing of this lawsuit, the National Music Publishers’ Association, Inc. (“NMPA”), on behalf of several unnamed NMPA members, informed Peloton of its infringing uses of works owned by several NMPA members with whom Peloton had not entered into licensing agreements.^[4] Following receipt of its letter, Peloton and the NMPA began discussing terms for Peloton to license the use of compositions controlled by NMPA members with whom it did not yet have licensing agreements.^[5] However, Peloton alleges that “NMPA ‘insist[ed]’ in the discussion that Peloton enter licensing agreements with all of NMPA’s member music publishers. Peloton explained that it ‘did not need licenses to all or even most music to provide a compelling experience for Peloton users; and it was therefore unreasonable and uneconomical’” to pay for works that would never be used on their platform.^[6] Further, Peloton alleges that all of its attempts to obtain a list of specific NMPA members, in order to negotiate with them individually, were rebuffed and that “NMPA ‘demanded’ that Peloton deal exclusively through NMPA, except for those members with whom Peloton already had licensing agreements.”^[7]

On April 30, Peloton filed counterclaims against both the Music Publishers and the NMPA, which had been speaking and negotiating on behalf of the Music Publishers (collectively, “Counter-Defendants”).^[8] The counterclaims assert, among other claims, certain antitrust violations, including “that, in violation of Section 1 of the Sherman Act, NMPA sought to extract supracompetitive license terms from Peloton by negotiating collectively on behalf of its member publishers, and that, as a result, the Music Publishers collectively refused to deal with Peloton.”^[9] Both parties subsequently amended their complaints and answers to the original suit, and the Counter-Defendants renewed their motion to dismiss, arguing failure to state a claim upon which relief can be granted.^[10]

The Counter-Defendants argued that Peloton’s Sherman Act claim should be dismissed for two reasons.^[11] First, “that Peloton has failed to sufficiently plead facts supporting the existence of a conspiracy” and second, “that Peloton has failed to identify a relevant product market”.^[12] While the U.S. District Court for the Southern District of New York ultimately found that “Peloton has plausibly alleged that the Counter-Defendants conspired to deny Peloton licenses to their copyrighted works,” it also found “that Peloton’s antitrust claims must be dismissed for failure to identify a relevant market.”^[13] To state a Sherman Act Section 1 claim, a claimant “must identify a relevant market in which the anticompetitive effects of the challenged restraint are to be measured or, if a per se violation is alleged, may be presumed.”^[14]

In its countersuit, Peloton loosely defined the relevant market as “sync ‘licenses to the copyrighted works controlled (in whole or in part) and collectively negotiated by the [Music] Publishers through NMPA.’”^[15] The court found that this market is not legally sufficient because “Peloton does not explain why it cannot substitute songs with sync licenses owned by the Music Publishers for songs with sync licenses owned by other publishers” as it has successfully done in the past.^[16] Indeed, Peloton concedes that it already has licenses from all of the major and many independent music publishers.^[17]

Here, the court found dismissal, without leave to amend, especially appropriate due to Peloton’s lack of a formal request to amend its counterclaims.^[18] While it seems there is quite a bit of debate around the idea of a “relevant market” and some hesitation by the courts to dismiss a case merely for failure to plead a relevant market, there is no absolute rule against it.^[19] Furthermore, it seems that Peloton failed to sufficiently request leave to amend its counterclaim in order to cure any deficiencies that it anticipated the court would find with respect to its definition of the “relevant market.”^[20]  While it seems likely that Peloton may have some luck appealing this interlocutory decision, it is difficult to predict how this case may pan out given the unique and burgeoning nature of the digital fitness industry in which Peloton exists.

Following this decision, NMPA president David Israelite said in a statement, “Today’s victory is a reminder that tech companies like Peloton cannot build businesses that are reliant on songwriters without asking their permission and paying them” and that Peloton’s counterclaims “were only meant to distract from their failure to license 2,468 songs.”^[21] A Peloton spokesperson stated that the company plans to continue challenging this decision, telling The Verge, “We respectfully disagree with this ruling regarding our counterclaims and are assessing our options for appeal. We will continue to vigorously contest the plaintiff publishers’ infringement claims, which were not addressed in this decision.”^[22]